1. Topics

S Corporation, Partnership & LLC Taxation

Minimizing a hobby loss issue by electing S status

To avoid the hobby loss rules, with their limitation on deductible expenses, an activity must be engaged in for profit; electing S status can help a taxpayer establish profit motive.

Further guidance issued on tax treatment of PPP loan forgiveness

Forgiveness amounts are excluded from gross income but included in gross receipts for purposes including determining “small business taxpayer” status under Sec. 448(c).

Carried interest reporting FAQs and guidance posted

The IRS posted FAQs with sample worksheets and instructions for taxpayers to use when calculating and reporting certain net long-term capital gains from partnership interests held in connection with the performance of services that must be recharacterized as short-term capital gains.

Beware of IRS initiatives against microcaptive insurance arrangements

Microcaptive insurance arrangements have been vigorously scrutinized recently by the IRS.

Guidance issued for LLCs seeking tax-exempt recognition

The IRS clarified the standards that an LLC must satisfy to obtain a determination letter that it is exempt from taxation under Sec. 501(c)(3).

Unvested partnership interests as compensation

This item focuses on the use of unvested capital interests as compensation.

Navigating the new Schedules K-2 and K-3

Schedule K-2 will report the partnership/S corporation–level activity attached to a flowthrough return, while Schedule K-3 will be provided to each partner or shareholder and report its proportionate amount for each item.

Illinois PTE tax would provide SALT cap workaround

This item discusses Illinois Legislature’s S.B. 2531, which includes a PTE tax that allows a workaround to the federal $10,000 limitation for state and local tax deductions.

The potential for lost benefits of Up-Cs in a Sec. 280E environment

This item summarizes the traditional Up-C/TRA arrangement and addresses the impact of Sec. 280E on the Up-C/TRA structure.

The Sec. 1061 capital interest exception and its impact on hedge funds

A hedge fund manager may be required to maintain separate tracking of a single partnership interest into several buckets to avoid the negative tax consequences of the short-term capital gain treatment of assets held from one to three years under Sec. 1061 for certain partnerships on the economic return of their invested capital.

Comparing stock sales and asset sales of S corporations

The issue of a stock sale versus an asset sale raises a number of significant issues to be considered by S shareholders.

When does a partnership terminate under Sec. 708?

It can be difficult to determine whether a partnership that retains de minimis assets or performs administrative functions during its winding-up period terminates, particularly if such activities cross tax years.

Partnership continuity in restructuring transactions

The issue of whether a partnership continues or terminates for U.S. federal income tax purposes frequently arises in restructuring transactions.

Where individual, corporate, and passthrough entity taxation meet

Passthrough owners must consider many risks and uncertainties, in addition to political trends on Capitol Hill, before opting into a state-level regime designed to bypass the $10,000 SALT deduction cap created by the TCJA.

Using a family LLC for estate planning

LLCs can help families achieve key business and tax objectives, while also providing liability protection and concentrating management power in the hands of less than all of the owners.

Current developments in S corporations

This update on recent developments in taxation relating to S corporations includes cases and rulings on eligible terminated S corporations, S corporation income and losses, the one-class-of-stock requirement, and other issues.

Compensatory split-dollar life insurance benefits are compensation

Economic benefits from a compensatory split-dollar life insurance arrangement are not property distributions.

Final rules for interest expense deductions affecting hedge funds

The final regulations provide relief to hedge funds and their passive investors, although the regulations may increase the administrative burden and reporting requirements on hedge fund managers.

The partner-to-partner attribution trap and the anti-churning rules

Taxpayers dealing with tax basis step-up transactions involving related parties or rollover equity interests should consider the application of the anti-churning rules to avoid unforeseen results.

Handling tax issues related to noncompete agreements

Covenants not to compete can protect a company’s interest as long as they are drafted in an appropriate manner, but their 15-year amortization period can cause issues.
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